Please describe your proposed solution.
How we perceive the problem to be solved
There is currently no community sourced alternative to the Edinburgh Decentralisation Index (EDI). It would be redundant to replicate the theoretical approach of the EDI and duplicate their work. However a different theoretical approach that explores Blockchain metrics from the aspect of the principal-agent problem offers a rich vein that is relatively unexplored, and offers a potentially useful complement and contrast to EDI.
What is our solution ?
The Fund 10 “Skin in the game and Agency Theory” proposal will research, develop and publish an Agency Theory approach to Cardano decentralization and blockchain metrics.
This project will cite and build upon a paper published in June 2023, in the journal “Technical Forcasting & Social Change”, entitled “Blockchain agency theory”. [<https://doi.org/10.1016/j.techfore.2023.122482>]. This paper examines the classic principal-agent problem in economics and attempts to assess blockchain solutions in this context.
Background
What is “skin in the game” ?
The phrase "Skin in the game" originated in the 1980s and referred to the amount of an investment owned by a company's management soliciting outside investment.
The more that was owned by management, the equity stake, was seen as an indication of confidence or stability in the investment. A sign that the management were personally invested and therefore had "skin in the game".
The phrase was subsequently taken up by Nassim Nicholas Talib in the 2018 book “Skin in the Game: Hidden Asymmetries in Daily Life”.
What is the principal-agent problem ?
Whilst “skin in the game” has often been presented as a positive sign of personal investment, an excess of interest or investment can prejudice participation and/or decision-making. This tendency is called the "principal-agent problem".
The principal–agent problem is about conflicts of interest and priorities when one party (the “agent”) takes action on behalf of another party (the “principal”). ( See https://en.wikipedia.org/wiki/Principal–agent_problem ).
What is Agency Theory ?
Agency theory examines problems and solutions arising from delegation of tasks from principals to agents where there is a conflict of interests between the parties. (See <https://www.sciencedirect.com/topics/social-sciences/agency-theory> )
What is the Edinburgh Decentralization Index (EDI) ?
The Edinburgh Decentralization Index was announced at IO Scotfest in a summary presentation by Professor Aggelos, Dr. Daniel Woods and Dr. Dimitris Karakostas.
<https://youtu.be/8GJQDsH854Q>A paper "Stratified Approach to Blockchain Decentralization" was published in November 2022 (https://arxiv.org/pdf/2211.01291.pdf) outlining a broad approach to the measurement of decentralization.
The reasons for our approach
How addressing the principal-agent problem differs from the scope of the EDI.
The EDI seeks to measure the extent to which a blockchain is decentralized. This proposal addresses the question of the extent to which blockchain technologies resolve principal-agent problems. Decentralization can operate at many levels, such as the resilience of a network to centralised control. But a robust, decentralized blockchain may still be subject to control by actors who implement legacy governance and commercial policies on the infrastructure.
Who we will engage
Once funded we will engage with academics on their research as part of our literature review. In addition we will reach out to other community researchers in the Cardano ecosystem. Once initial research has been completed we will engage the Cardano community itself in a review and comment exercise.
How we will demonstrate our impact.
What is unique about your solution, who will benefit, and why this is important to Cardano.
This solution is unique in building on recent academic research to apply Agency Theory methods to assessment of Blockchain solutions. Dimensions of the principal-agent problem will be explored in a Blockchain assessment context in a way that complements other theoretical approaches.
This research is intended to benefit stakeholders in the Cardano ecosystem by providing an informed approach to Blockchain assessment.
It is important to Cardano in providing a way to reflexively develop its blockchain strategy from economic, social and developmental perspectives.
How does your proposed solution address the challenge and what benefits will this bring to the Cardano ecosystem?
The F10 Skin in the game and Agency Theory proposal will benefit the Cardano ecosystem by providing an independent perspective on measuring blockchain metrics and will complement the work of the Edinburgh Decentralisation Index.
The proposal aims to produce standalone research materials and has self-sufficient deliverables.
However the research provided could be used as the basis for a standard metric approach.
The proposal is open source and licensed under the Apache 2.0 license.
Outputs from this proposal will be shared in a GitBook format that is mirrored to an Open Source GitHub repository. Material will also be shared on the QADAO website (https://qadao.io/), Twitter (https://twitter.com/qa_dao) and YouTube channel (https://www.youtube.com/@qadao).
There is no Fund 10 Challenge that specifically provides for original, independent research into Blockchain metrics and measurement, so the proposal fits the requirements of the Open challenge.
How do you intend to measure the success of your project?
The success of this project will be measured by its impact on Cardano’s productivity and growth by providing community sourced research and innovation in blockchain assessment.
This will demonstrate that Cardano’s community is mature enough to produce research and complement more formal endeavors. Recognition of a blockchain’s maturity can attract greater and broader interest from academics and help grow Cardano’s base.
In the first instance the success of this project will be measured by community feedback and review. In addition academics cited will be contacted for feedback.
Please describe your plans to share the outputs and results of your project?
We plan to spread our project's outputs over discrete stages that run for 6 months. The detail of our milestones can be referenced in the Milestones section.
We will share our work through
- workshops with the community
- detailed documentation
- posts on Twitter, Discord, Telegram
- through contact with academics working in this field.